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Sixth Circuit Rules on Ohio Oil and Gas Law

Yesterday, the Sixth Circuit Court of Appeals ruled on a case of first impression involving Ohio’s four-year statute of limitations on lawsuits arising from miscalculation of royalty payments in oil and gas leases. It had been successfully argued in the U.S. District Court that any miscalculation occurring after an initial miscalculated payment was part of a “continuing violation” and that the limitations period ran from the date of the initial miscalculation. On appeal, the Sixth Circuit reversed the U.S. District Court and ruled that Ohio law dictates that the royalty payment provision in the oil and gas lease at issue be treated as a divisible contractual obligation. Because the contractual obligations were determined to be divisible, each alleged miscalculation triggers a new four-year limitations period. Thus, any alleged miscalculated payment which occurred during the four years prior to the lawsuit could be included in a claim for breach of the oil and gas lease.